How to get a mortgage when self employed
How to get a mortgage when self employed
Getting your hands on a mortgage can be frustrating and a headache at times, and it’s made no easier if you’re self employed. Due to the nature of self employed borrower’s inconsistent incomes, lenders tend to be more sceptical towards handing out mortgages to self employed borrowers, viewing them as a more risky investment.
As a result, lenders often make self employed prospective borrowers jump through additional hoops to reassure them that they are worth lending to. However, if you’re self employed and are looking to secure a mortgage, there are a number of steps you can take to help your application and prove to lenders that you can comfortably make the repayments required for your ideal home.
What’s the difference between a normal mortgage and a self employed mortgage?
In theory, providing that you are able to prove that you can make the required repayments on the loan; as a self employed buyer you will have access to the exact same range of mortgages as those with regular incomes.
Whilst there are considerably fewer specialist lenders with products designed specifically for self employed buyers, it is not uncommon for mainstream lenders to routinely offer the self employed mortgage deals. It is therefore advised that you shop around and review what both mainstream and specialist lenders can offer you.
I have irregular income, how will lenders take this into consideration?
In regards to how a lender will assess your income, they are also likely to review your application differently depending on which of the three business structures you have set up.
If you are a sole trader, it is likely your lender will look at your profits when assessing your application. In order to do this, they usually will ask that you provide them with SA302 form, which shows the total tax income received and your total tax that is due.
Within a partnership structure, a mortgage lender is likely to look at each partner’s share of the profit. Consequently, you should have accounts that show exactly how much you have made so your lender can easily view your annual income.
As a director of a limited company, it is likely that you will pay yourself a basic salary plus dividend payment. If this applies to you, you should ensure that the lender takes both these elements of your income into consideration when assessing your mortgage affordability.
How to improve your mortgage application
1. Save for a deposit
In order to reduce the perceived risk in lending to you, you should save for a hefty deposit of between 10-25%. This will reduce the amount you would need to borrow from a lender and would consequently reduce the risk associated with lending to you.
2. Enhance your credit score
A good credit score indicates that you are comfortable with paying off debts on time. Strengthening your credit score will greatly strengthen your application and can be done through paying phone bills, credit cards etc when they are due.
3. Budget your spending
You should look to cut down on your food, phone and other expenditure with as much time as possible leading up to your mortgage application. Lenders are likely to look at all of your regular outgoings when considering your application, which it is why it is important to keep spending as low as possible.
4. Hire an accountant
Most lenders will accept evidence of your income in the form of yearly accounts if they are provided by a certified accountant.
5. Keep your accounts in order
Lenders generally will ask to see your SA302 form along with two years of accounts to give a clear indication as to how much you owe in tax in a given year.
6. Declare everything to the tax man
The amount that you will be able to borrow is going to be primarily based around the amount of money that you earn. Whilst many self employed people look to minimise their earnings in their account in order to reduce the amount they are required to pay in tax, by doing this you are likely to reduce the amount you are able to borrow. Consequently, if you need a larger loan to pay for your new property, you should look to declare as much as possible in tax.
7. Speak with a mortgage broker
A mortgage broker will be able to review your personal situation and assist in finding a mortgage deal with a competitive rate and that you’re eligible for. They also often have access to exclusive deals that you will not be able to find on the high street.
Fortunately; we work with the majority of UK mortgage lenders, which means we have access to self employed lenders with flexible criteria and competitive rates for self employed buyers. Our team of mortgage specialists can help evaluate your personal situation, and help you in finding a mortgage that fits your self employed needs. For a free initial consultation, why not call us today on 0117 313 7780, or fill in our contact for to request a callback